We acquired a Bank REO that was originally approved as a 52-unit condominium project, and had sat abandoned mid-construction for two years. The Bank had funded $5,400,000 and we acquired the project for $1,100,000.
We demolished the building down to its foundation, and added a new post-tension slab to enable greater weight and density, and to be conservative given the abandoned state of the asset. And worked with the City to change the zoning to an Apartment project, with increased density from 52 units to 89 units.
The added value manifested in two ways, acquiring a “problem” asset at well under-market costs, and then improving the intrinsic economics by increasing unit density 71%, resulting in lower costs and higher revenues, respectively.
Although Serra Commons is a relatively small project, it exemplifies our real estate philosophy, i.e., “there are no bad assets, just over-priced assets.” We enjoy the challenge of applying sound strategies to underperforming assets, as long as the added time and risk are priced into the equation.
This project reflects our preferred formula of acquiring underperforming or otherwise difficult assets and through hands-on value-added management to mitigate risk and drive superior returns. We sold Serra Commons for $10,000,000, which provided us a return of 21x, our equity investment.